The Roth IRA comes with other caveats as well:
Deduct income not contributions Contributions to a Roth IRA are not deductible, but you don't pay taxes on qualified distributions. Must wait five years to be qualified for a Roth IRA, a distribution (withdrawal) must be made five taxable years after the first contribution to the account was made.

In addition, the distribution must meet at least one of the following conditions:

  * Money used to buy first home 

  * Withdrawal made after account-holder is 59 

  * Withdrawal made because account-holder becomes disabled 

  * Money distributed to beneficiary after account-holder's death 

  * Limits on the contribution 

You can contribute up to $3,000 a year to an account, but only if you're a single tax-filer with adjusted gross income of less than $95,000 or joint filers with combined income below $150,000. Convert your existing IRA carefully The new tax law permits you to convert your existing individual retirement account into a Roth IRA if your adjusted gross income is less than $100,000 and you are not married and filing separately. Any amount that would have been taxable as income when withdrawn from the existing account will be taxed. There are other limits; consult a tax professional for details. 401(k) Plans If you are participating in your employer's tax-deferred retirement plan, you can borrow up to a specified limit from that account penalty-free to buy a house for yourself or for a relative. A relative who participates in such a plan also can draw from his or her account to give to you as a gift or loan to buy a home. Tapping 401(k) funds isn't as easy as it sounds, however. Because you do have to pay the money back, your lender will count it as outstanding debt when calculating your income-to-debt ratios. If you are carrying too much other debt, you could be disqualified for your loan. 



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